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Financial Statements

38. Differences between IFRS and US generally accepted accounting principles

National Grid prepares its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, which differ in certain respects from generally accepted accounting principles in the United States (US GAAP). IFRS as adopted by the European Union is materially the same as IFRS published by the International Accounting Standards Board (IASB).

The most significant difference between IFRS and US GAAP as it relates to National Grid is that the business combination with Lattice Group plc was accounted for as a merger (pooling of interests) under the then prevailing accounting standards generally accepted in the UK (UK GAAP). This accounting treatment of the transaction and its resulting account balances were retained at 1 April 2004, the date of transition to IFRS. Under US GAAP, this transaction was accounted for as an acquisition (purchase accounting) of Lattice Group plc. Consequently, under IFRS, the accounts represent the combined accounts of National Grid plc and Lattice Group plc on an historical cost basis for all periods presented. Under US GAAP, the accounts presented include Lattice Group plc and subsidiaries at fair value at the date of acquisition.

Condensed income statements, statements of comprehensive income and changes in shareholders' equity and balance sheets in accordance with US GAAP disclosure requirements are presented in note 39. The balance sheets at 31 March 2006 and 31 March 2007 include the impact of the fair value of the acquired assets and liabilities of Lattice Group plc prepared under US GAAP at the date of acquisition. The effect of US GAAP adjustments on the profit for the financial year attributable to equity shareholders and shareholders' equity is set out below.

Reconciliation of profit from IFRS to US GAAP

The following is a summary of the material adjustments to profit that would have been required if US GAAP had been applied instead of IFRS:

	Notes	2007 £m	2006* £m	2005* £m
Profit for the year attributable to equity shareholders under IFRS		1,394	3,848	1,424
Adjustments to conform with US GAAP
Purchase accounting	(a)	(124)	(127)	(176)
US regulatory accounting	(b)	(474)	(269)	(246)
Pensions and other post-retirement benefits	(c)	(94)	(56)	(21)
Financial instruments	(d)	160	(108)	254
Severance and onerous lease costs	(e)	2	(63)	62
Revenue recognition	(f)	5	(48)	5
Discounting of provisions	(i)	3	(14)	-
Sale and leaseback	(k)	(19)	-	-
Current tax	(l)	15	-	-
Deferred taxation	(m)	295	208	19
Other	(n)	15	(1)	2
Discontinued operations	(a),(c),(d),(g),(h)	(32)	(2,349)	(51)
Discontinued operations – deferred taxation	(m)	-	286	16
		(248)	(2,541)	(136)
Net income under US GAAP		1,146	1,307	1,288

*Reclassified as a result of businesses qualifying as discontinued operations in 2006/07. The 2005 comparatives have been restated due to the change in methodology for calculating net periodic pension charge, as described in note 38 (c)

Reconciliation of shareholders' equity from IFRS to US GAAP

The following is a summary of the material adjustments to shareholders' equity that would have been required if US GAAP had been applied instead of IFRS:

	Notes	2007 £m	2006 £m
Total shareholders’ equity under IFRS		4,125	3,482
Adjustments to conform with US GAAP
Purchase accounting - property, plant and equipment	(a)	2,038	2,162
Purchase accounting - goodwill	(g)	2,648	2,689
US regulatory accounting	(b)	2,209	2,702
Pensions and other post-retirement benefits	(c)	-	886
Financial instruments	(d)	10	119
Revenue recognition	(f)	(37)	(42)
Intangible assets	(h)	26	28
Provisions	(i)	(142)	(154)
Non-reversal of impairments	(j)	(23)	(39)
Sale and leaseback	(k)	(19)	-
Deferred taxation	(m)	(1,477)	(2,090)
Other	(n)	(28)	4
		5,205	6,265
Shareholders’ equity under US GAAP		9,330	9,747

The principal differences between IFRS and US GAAP, as applied in preparing the accounts under US GAAP, are set out below:

a) Purchase accounting - property, plant and equipment

In accordance with IFRS 1, business combinations that occurred prior to 31 March 2004 have not been restated. The business combination with Lattice Group plc has therefore not been adjusted from the amount calculated under the Company's previous basis of accounting under UK GAAP and continues to be accounted for as a merger (pooling of interests) under IFRS. However, under US GAAP the business combination was accounted for using purchase accounting. As a consequence, fair value adjustments have been recognised under US GAAP in relation to property, plant and equipment, which are being depreciated over the related assets' useful economic lives. As a result, goodwill arising on the purchase has been recognised under US GAAP.

The impact of this adjustment has been to decrease other operating income by £8m (2006: £29m; 2005: £31m) due to the fair value impact on the net book value of property, plant and equipment disposed, increase the depreciation charge by £116m (2006: £98m; 2005: £138m), and increase other charges by £nil (2006: £nil; 2005: £7m).

Purchase accounting adjustments and goodwill associated with the businesses, which were disposed during 2005/06 have been recycled to net income and recognised as a reduction in the gain on disposal compared with that recorded under IFRS. These adjustments are reported within discontinued operations.

b) US regulatory accounting

Statement of Financial Accounting Standard (SFAS) 71 ‘Accounting for the Effects of Certain Types of Regulation’ establishes US GAAP for utilities whose regulators have the power to approve and/or regulate rates that may be charged to customers. Provided that through the regulatory process the utility is substantially assured of recovering its allowable costs by the collection of revenue from its customers, such costs not yet recovered are deferred as regulatory assets. Such recoverable assets, which would be recognised as regulatory assets under US GAAP, are not recognised as assets under IFRS on the basis that they do not meet the criteria for recognition as an asset, intangible or other, under IFRS and are therefore expensed. Under US GAAP, these costs are amortised over the period indicated in the rate agreements with the regulators.

Regulatory liabilities are recorded for revenues collected for payment of future costs or for future return to customers. Under IFRS, these amounts are recognised as revenue when receivable.

The principal impacts of this adjustment on the income statement are a decrease to revenue of £21m (2006: £89m increase; 2005: £37m increase), an increase in purchases of electricity of £288m (2006: £116m; 2005: £182m) and an increase in other charges (principally regulatory asset amortisation) of £182m (2006: £271m; 2005: £96m). In the balance sheet, the principal impacts are to report current regulatory assets of £305m (2006: £246m) and non-current regulatory assets of £2,575m (2006: £2,805m), increase property, plant and equipment by £265m (2006: £222m), and increase other non-current liabilities by £873m (2006: £381m).

The following table details the various material components and amounts of regulatory assets net of related regulatory liabilities and the impact of US regulatory accounting:

	2007 £m	2006 £m
	Net impact of US regulatory accounting
Stranded costs and CTC (i) related	1,092	1,355
Purchased power and deferrals	67	124
Derivative instruments	263	478
Environmental, remediation and decommissioning	350	418
Pensions and post-retirement benefits	499	265
Other	(62)	62
	2,209	2,702

i) Contract Termination Charge and Competitive Transmission Charge (collectively referred to as CTC).

c) Pensions and other post-retirement benefits

The Company has adopted SFAS 158 ‘Employers' Accounting for Defined Benefit Pension and Other Post-retirement Plans, an amendment of FASB statements No. 87, 106 and 132(R)’ (SFAS 158).

The incremental effect of applying SFAS 158 is set out below:

	Before application of SFAS 158 £m	Adjustments £m	After application of SFAS 158 £m
Intangible assets	41	(41)	-
Regulatory assets	20	274	294
Post-retirement benefits	(1,026)	(196)	(1,222)
Deferred tax	339	14	353
Accumulated comprehensive loss	(626)	51	(575)

Net losses of £87m included in accumulated comprehensive loss are expected to be recognised as a component of net periodic cost in the year ending 31 March 2008, of which £13m is in respect of prior service costs.

The effect of SFAS 158 was to increase assets by £233m, increase liabilities by £182m and increase equity by £51m.

Under IFRS, actuarial gains and losses are recognised in the statement of recognised income and expense in the year in which they occur. Under US GAAP, amortisation of unrecognised actuarial gains and losses that fall outside a specified corridor are recognised within the income statement.

Interest costs associated with pension and other post-retirement benefit obligations are presented within finance costs under IFRS as opposed to within net periodic pension costs under US GAAP.

Under IFRS, curtailment or settlement gains and losses are included in full in the income statement. Under US GAAP, these gains and losses are recognised in the income statement to the extent that they exceed unrecognised losses.

In 2007 the method of calculating the market related value in one pension plan has been changed. Previously gains or losses on assets in the plan were deferred and recognised over a five year period. The fair value method is now used to determine the market related value. The Company believes it is preferable to change to the fair value method of determining the market related value of plan assets for this plan because it promotes consistency with its other pension plans in measuring the net periodic pension costs. This, in turn, will help provide a measure of net periodic pension cost that is more comparable and understandable to users.

In respect of certain plans in the United States, the Company continues to adopt a market related value which defers gains or losses over a five year period. This is consistent with the rate plans agreed with the regulators of the subsidiaries participating in plans. The recognition of pension costs therefore reflects the underlying economic environment of those subsidiaries.

The change in the method for determining the market related value has increased income from continuing operations and net income for the year ended 31 March 2007 by £15m (2006: £nil; 2005: £16m reduction in net income) and basic and diluted earnings per share by 0.6p (2006: nil; 2005: 0.5p reduction in earnings per share) and 0.5p (2006: nil; 2005: 0.5p reduction in earnings per share) respectively. As at 31 March 2004, retained earnings and other comprehensive loss were reduced by £37m. The reduction in accumulated other comprehensive loss reflects a reduction in the additional minimum pension liability. As at 31 March 2005 and 2006 retained earnings and other comprehensive loss were reduced by £53m.

The pensions and other post-retirement benefits US GAAP adjustment reported in the tables above impacts on the following lines in the consolidated income statement: increasing depreciation by £1m (2006: £1m; 2005: £nil) for depreciation on capitalised pension costs; increasing payroll costs by £36m (2006: £67m; 2005: £49m); decreasing other charges by £nil (2006: £nil; 2005: £27m); and increasing net finance costs by £57m (2006: decrease of £12m; 2005: decrease of £1m). On the balance sheet, the adjustment principally affects the reported pensions post-retirement and other liabilities.

The net periodic charge for pensions and other post-retirement benefits is as follows:

	Pensions			Other post-retirement benefits
	2007 £m	2006* £m	2005* £m	2007 £m	2006 £m	2005 £m
Continuing operations
Defined contribution scheme cost	3	2	2	-	-	-
Defined benefit schemes
Service cost	113	111	107	15	16	12
Interest cost	803	802	828	63	63	56
Expected return on plan assets	(882)	(847)	(847)	(41)	(41)	(40)
Amortisation of prior service cost	6	5	6	7	6	3
Amortisation of previously unrecognised actuarial losses	54	58	55	23	-	20
	97	131	151	67	44	51
Release of pension provision	(2)	(2)	(2)	-	-	-
	95	129	149	67	44	51
Discontinued operations
Service cost	2	7	28	-	-	-
Interest cost	2	2	1	-	-	-
Expected return on plan assets	(2)	(2)	(1)	-	-	-
	2	7	28	-	-	-

*Comparatives have been restated to include impact of change in method of valuing plan assets. They have also been restated to reclassify amounts relating to discontinued operations

The additional cost/(gain) incurred in respect of severance cases computed in accordance with SFAS 88 ‘Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits’ is as follows:

	2007 £m	2006 £m	2006 £m
Cost of termination benefits and curtailments - continuing operations	42	32	30
Gain on termination benefits and curtailments - discontinued operations	-	(41)	-
	42	(9)	30

The principal financial assumptions used for the SFAS 87 calculations of net periodic charge, based on a measurement date of 31 March 2006 in respect of the US and UK defined benefit schemes are shown below:

	US			UK
	2007 %	2006 %	2005 %	2007 %	2006 %	2005 %
Discount rate	6.0	5.8	5.8	4.9	5.1	5.5
Expected return on assets	7.8-8.3	7.0-8.3	8.3	5.8-6.4	5.8-6.4	6.2-6.7
General salary increases	3.9-4.3	3.9-4.3	3.3-5.3	3.9	3.9	3.9
Pension increases	nil	nil	nil	3.0	3.0	3.0

The assumptions used for other post-retirement costs relate solely to US schemes. These assumptions were that the discount rate used would be 6% (2006: 5.8%; 2005: 5.75%) and that medical costs would increase by 10% (2006: 10%; 2005: 10%), decreasing to 5% (2006: 5%; 2005: 5%) by 2011 and remain at 5% (2006: 5%; 2005: 5%) thereafter.

A reconciliation of the funded status of the pension and other post-retirement schemes to the net accrued benefit liability that was included in the consolidated balance sheet prepared under US GAAP is as follows:

	Pensions		Other post-retirement benefits
	2007 £m	2006 £m	2007 £m	2006 £m
Projected benefit obligation at 31 March (i)	(16,113)	(16,603)	(1,126)	(1,223)
Fair value of plan assets at 31 March	15,486	15,358	531	568
Excess of projected benefit obligation over plan assets	(627)	(1,245)	(595)	(655)
Unrecognised net actuarial loss	-	755	-	335
Unrecognised prior service cost	-	56	-	69
Net accrued benefit liability – before minimum liability adjustment	(627)	(434)	(595)	(251)
Additional minimum liability adjustment	-	(396)	-	-
Net accrued benefit liability	(627)	(830)	(595)	(251)

Non-current liabilities (ii)	(675)	(1,026)	(595)	(251)
Assets (pre-paid costs)	48	196	-	-
Net accrued benefit liability (ii)	(627)	(830)	(595)	(251)

(i) The projected benefit obligation of pensions at 31 March 2007 includes £83m (2006: £96m) in respect of unfunded obligations.

(ii) The difference between pension and other post-retirement non-current liabilities shown above and the amounts reflected in the balance sheet as ‘Pensions and other post-retirement obligations’ in note 39 primarily represents other post-employment benefits.

Following adoption of SFAS 158, no amount is recognised as an additional minimum liability as at 31 March 2007. A regulatory asset of £294m has been recognised in relation to the post-retirements benefit liabilities.

At 31 March 2006, as required under SFAS 87, an intangible asset of £56m was recognised in relation to the additional minimum liability, being equal to the unrecognised prior service cost. A regulatory asset of £46m was also created. The remaining additional minimum liability of £294m was included in other comprehensive income.

The principal financial assumptions used for the SFAS 87 calculations of the projected benefit obligation, based on a measurement date of 31 March 2007, in respect of the US and UK defined benefit schemes are shown below:

	US			UK
	2007 %	2006 %	2005 %	2007 %	2006 %	2005 %
Discount rate	5.8	6.0	5.8	5.4	4.9	5.4
General salary increases	3.9-4.3	3.9-4.3	3.9-4.3	4.2	3.9	3.9
Pension increases	nil	nil	nil	3.25	2.95	3.0

The accumulated benefit obligation for pensions was £15,342m at 31 March 2007 (2006: £16,180m), including £3,040m in respect of schemes that had a deficit of assets compared to accumulated benefit obligations. The total associated assets of these schemes were £2,610m at 31 March 2007. The Company has followed approach two of Emerging Issues Task Force (EITF) Abstract 88-1 in calculating the accumulated benefit obligation. Changes in the projected benefit obligation and changes in the fair value of plan assets are shown below:

	Pensions		Other post-retirement benefits
	2007 £m	2006 £m	2007 £m	2006 £m
Projected benefit obligation at start of year	16,603	15,758	1,223	1,068
Service cost	115	118	15	16
Interest cost	805	804	63	63
Plan participants’ contributions	14	14	-	-
Plan amendment – prior service cost	-	-	-	-
Terminations	23	49	-	-
Curtailments	4	(157)	-	-
Actuarial (gain)/loss	(464)	1,301	4	40
Benefits paid	(758)	(775)	(62)	(59)
Settlements (i)	(87)	(619)	-	-
Acquisition of subsidiary undertakings	89	-	25	-
Transfers	1	(17)	-	-
Reclassified as liabilities of businesses held for sale	(48)	-	-	-
Exchange adjustments	(184)	127	(142)	95
Projected benefit obligation at end of year	16,113	16,603	1,126	1,223
Fair value of plan assets at start of year	15,358	14,086	568	488
Actual return on assets	796	2,370	53	65
Employer contributions	276	191	28	30
Plan participants’ contributions	14	14	-	-
Benefits paid	(758)	(774)	(58)	(59)
Settlements (i)	(87)	(609)	-	-
Acquisition of subsidiary undertakings	82	-	7	-
Transfers	-	(15)	-	-
Reclassified as liabilities of businesses held for sale	(46)	-	-	-
Exchange adjustments	(149)	95	(67)	44
Fair value of plan assets at end of year	15,486	15,358	531	568

(i) For the year ended 31 March 2007, settlements shown above of £87m were classified as benefits paid under IFRS (see note 8).

As at 31 March 2007 the following benefit payments, which reflect future service as appropriate, are expected to be paid:

Year ended 31 March	Pensions £m	Other post-retirement benefits £m
2008	765	60
2009	779	65
2010	795	67
2011	812	70
2012	831	72
2013-2017	4,643	377

In the UK, the trustees for each plan are responsible for setting the long-term strategy after consultation with the Company and its professional advisers. The trustees' objectives are to invest in assets of appropriate liquidity, which, together with future contributions from employers and members, would expect to: generate income and capital growth to meet the cost of benefits from the plans; limit the risk; and minimise the long-term cost. In the US, pension plan investments are managed to minimise the long-term cost of operating the plan, with a reasonable level of risk.

Risk tolerance is determined as a result of periodic asset/liability studies that analyse plan liabilities and funded status and results in the determination of the allocation of assets.

Equity investments, fixed income and index-linked portfolios are broadly diversified. Investments are also held in property, private equity and timber with the objective of enhancing long-term returns while improving diversification. Investment risk and return are reviewed by investment committees on a quarterly basis.

Expected subsidy receipts in respect of healthcare benefits are as follows:

	£m
2008	4
2009	4
2010	4
2011	4
2012	5
2013-2017	25

d) Financial instruments

On 1 April 2005, the Company adopted IAS 39 in its consolidated financial statements and as a consequence derivatives are now recognised in the balance sheet at their fair value, similar to the requirements of SFAS 133 ‘Accounting for Derivative Instruments and Hedging Activities’ (SFAS 133). In accordance with IAS 39, the Company has adopted hedge accounting in its consolidated financial statements and has designated hedges as either fair value, cash flow or foreign currency exposures of net investments in foreign operations. Although similar in nature to SFAS 133 there are differences between the requirements of IAS 39 and SFAS 133, in particular SFAS 133 does not include the transitional provisions of IAS 39 that permitted hedges to be recognised as effective on 1 April 2005. Accordingly, certain derivatives qualify for hedge accounting under IFRS but not under US GAAP. Where hedges that meet the requirements of IAS 39 also meet the requirements of SFAS 133 they are accounted for as hedges under US GAAP, otherwise the fair value adjustments of the hedges are recognised in the US GAAP income statement and hence are included as reconciling differences.

Under US GAAP, as required by SFAS 133, all derivative financial instruments, including derivatives embedded within other contracts, are required to be recognised in the balance sheet as either assets or liabilities and measured at fair value. SFAS 133 permits hedge accounting in specific circumstances, where the hedge is designated and documented as one of three types: fair value; cash flow; or foreign currency exposures of net investments in foreign operations. Provided that it can be demonstrated that the hedge is highly effective and the relevant hedging criteria have been met, then in respect of fair value hedges, both the change in fair value of the derivative and hedged item are reflected in net income in the period. For cash flow hedges and hedges of foreign currency exposures of net investments in foreign operations, changes in fair value are reflected through other comprehensive income. In the event that the conditions for hedge accounting are not met, changes in the fair value of derivatives are reflected in net income.

Prior to 31 March 2005, the Company did not apply hedge accounting for the purposes of SFAS 133 except for certain hedges of net investments in foreign operations. Excluding the hedges of net investments that were designated and qualified as hedges under SFAS 133, the reconciliation to net income for the year ended 31 March 2005 reflected the changes in fair value of derivative financial instruments that were given hedge accounting under IFRS. There was no reconciling adjustment for the hedges of net investments for which the Company had adopted hedge accounting under SFAS 133, as realised and unrealised gains and losses were taken to other comprehensive income under US GAAP.

Contracts that qualify as normal purchases and normal sales and are designated as such are excluded from the requirements of SFAS 133. In line with the treatment under IFRS, the realised gains and losses on these contracts are reflected in the income statement at the contract settlement date.

The financial instruments US GAAP adjustment affect the reported net finance cost in the income statement. On the balance sheet, this adjustment represents the reclassification of reported derivative financial assets and liabilities (both current and non-current), with an associated decrease in reported current borrowings of £nil (2006: £7m) and non-current borrowings of £10m (2006: £112m).

e) Severance and onerous lease costs

Under IFRS, severance costs in respect of voluntary severance arrangements are provided for when it is determined that a constructive or legal obligation has arisen from a restructuring programme, where it is probable that it will result in the outflow of economic benefits and the costs involved can be estimated with reasonable accuracy. Under US GAAP, such severance costs are recognised when the employees accept the severance offer. Accordingly, timing differences between IFRS and US GAAP arise on the recognition of such costs.

Similarly, under IFRS future costs related to property leases have been accrued for in connection with vacating certain premises. Under US GAAP a liability was recognised when the ‘cease use’ date was reached, resulting in a timing difference between IFRS and US GAAP on the recognition of such costs.

f) Revenue recognition

Under US GAAP, revenue is recognised in the period that the service is provided up to the maximum revenue allowed under the terms of the relevant regulatory regime for businesses outside of the scope of SFAS 71. Under IFRS, any such revenue received or receivable in excess of the maximum revenue allowed for the period, under the terms of the relevant regulatory regime, is recognised as income, even where prices will be reduced in a future period.

g) Goodwill

Under IFRS, the business combination with Lattice Group plc has been accounted for on the same basis as previous GAAP (UK GAAP) as a merger (pooling of interest) while under US GAAP, this transaction was accounted for as an acquisition (purchase accounting) of Lattice Group plc. As acquisitions made prior to 1 April 2004 were accounted for under UK GAAP, and were not reopened on transition to IFRS, differences in measurement also exist between US GAAP and IFRS. As a result, the US GAAP fair value of net assets of subsidiary undertakings acquired differs from the fair value of net assets as determined under IFRS. In addition, until 31 March 2004 goodwill was amortised under previous GAAP (UK GAAP) whereas under US GAAP amortisation of goodwill ceased on adoption of SFAS 141 ‘Business Combinations’. The balance sheet adjustment includes a reduction to goodwill of £31m in respect of businesses held for sale as at 31 March 2007.

h) Intangible assets

Under IFRS, in a business combination, intangible assets that meet certain criteria are recognised as assets, separate from goodwill, at fair value. Under US GAAP, these criteria are similar, however the creation of the intangibles includes the recognition of notional tax benefits. All of this adjustment relates to assets of businesses held for sale as at 31 March 2007.

i) Provisions

IFRS requires the time value of money to be taken into account when making a provision. US GAAP, however, only permits a provision to be discounted where the amount of the liability and the timing of payments are fixed or reliably determinable or where the obligation is a fair value obligation. Amounts associated with the unwinding of discounts on provisions are shown within interest expense under IFRS.

j) Impairments

During the financial year ended 31 March 1990, an impairment provision was recorded in respect of certain property, plant and equipment. As required under IFRS, part of this impairment provision was subsequently released and shareholders' equity credited. Under US GAAP, this partial release is not permitted. During 2005/06 an impairment in respect of a joint venture was reversed under IFRS, whereas under US GAAP such reversal was not permitted which subsequently resulted in a higher gain on disposal of the joint venture in 2006/07.

k) Sale and leaseback

Under IFRS, where an asset is sold and then leased back and where the resultant lease is an operating lease, the gain on disposal is recognised immediately, provided that the sale price is established at fair value. Under US GAAP this gain is deferred and recognised over the related rental period.

l) Current tax

Under US GAAP, in accordance with EITF 93-7 ‘Uncertainties related to Income Taxes in a Purchase Business Combination’, an adjustment to pre-acquisition tax positions has resulted in a corresponding adjustment to goodwill. Under IFRS, no adjustment to goodwill is made and the tax adjustment is taken to net income.

m) Deferred taxation

The deferred taxation adjustment principally reflects the tax effect of the other measurement and recognition differences between IFRS and US GAAP.

The corporate tax charge on continuing operations under US GAAP is analysed between current taxes and deferred taxes as follows:

	2007 £m	2006 £m	2006 £m
Current taxes (credit)/charge	(17)	406	14
Deferred taxes charge/(credit)	149	(85)	285
Tax charge	132	321	299

The net deferred tax liability under US GAAP is analysed as follows:

	2007 £m	2006 £m
Deferred taxation liabilities:
Excess of book value over taxation value of fixed assets	3,906	3,778
Other temporary differences	972	1,494
	4,878	5,272
Deferred taxation assets:
Other temporary differences (i)	(1,018)	(1,252)
	3,860	4,020
Analysed as follows:
Current	(60)	(43)
Non-current	3,920	4,063
	3,860	4,020

(i) Deferred taxation assets at 31 March 2007 were stated net of a £422m valuation allowance adjustment in respect of capital losses, non-trade deficits, trading losses and pre-trading expenditure (2006: £530m; 2005: £493m).

n) Other

Other differences between IFRS and US GAAP are not individually material and relate to differences arising from the recognition of amortisation expense on certain assets, timing differences related to recognition of provisions, share-based payment charges and other interest income.

Other US GAAP disclosures

Non-GAAP measures

In preparing the accounts in accordance with the Companies Act 1985 and IFRS, certain information is presented that could be viewed as ‘non-GAAP’ under regulations issued by the US Securities and Exchange Commission if our primary financial statements were reported under US GAAP. We consider that the use of such measures is in conformity and expressly permitted by IAS 1 ‘Presentation of Financial Statements’. Our accounting policy (r) Business performance, exceptional items and remeasurements, describes the use of these measures. Non-GAAP measures are not included in our condensed US GAAP statements.

Restricted net assets

National Grid USA and its public utility subsidiaries, all consolidated subsidiaries of the Company, are subject to restrictions on the payment of dividends by administrative order and contract. Orders by the Federal Energy Regulatory Commission and applicable state regulatory commissions limit the payment of dividends as follows. The subsidiaries may pay dividends in an amount up to cumulative retained earnings, including pre-acquisition retained earnings. Other orders by federal and state commissions require National Grid USA and its public utility subsidiaries to maintain a ratio of at least 30% equity to capital, and debt covenants in effect require that this ratio be maintained at a level of at least 35%. At 31 March 2007, £2.9bn of net assets were restricted, representing 31% of the Company's consolidated net assets under US GAAP at that date.

New US Accounting Standards adopted during 2006/07

SFAS 158

In September 2006, the FASB issued Statement of Financial Accounting Standard No. 158 ‘Employers' Accounting for Defined Benefit Pension and Other Post-retirement Plans, an amendment of FASB statements No. 87, 106 and 132(R)’ (SFAS 158). This standard requires recognition of a net liability or asset and an offsetting adjustment to accumulated other comprehensive income to report the funded status of defined benefit pension and other post-retirement benefit plans. SFAS 158 requires prospective application, recognition and disclosure requirements effective for the year ended 31 March 2007. The Company adopted SFAS 158 on 31 March 2007. This has had the effect of substantially reducing (but not completely eliminating) the difference in shareholders' equity between IFRS and US GAAP as at 31 March 2007. The difference in net income between IFRS and US GAAP in future periods is likely to remain substantially unchanged.

SFAS 123(R)

In December 2004, the FASB issued FASB Statement No. 123 (revised 2004) ‘Share-Based Payment’ (SFAS 123(R)), which is a revision of FASB Statement No. 123 ‘Accounting for Stock-Based Compensation’ (SFAS 123). SFAS 123(R) supersedes APB Opinion No. 25 ‘Accounting for Stock Issued to Employees’, and amends FASB Statement No. 95 ‘Statement of Cash Flows’. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognised in the income statement based on their fair values. Pro-forma disclosure is no longer an alternative. The Company adopted SFAS 123(R) as of 1 April 2006.

SFAS 123(R) permits adoption of the requirements using one of two methods: a ‘modified prospective’ method where the requirements are applied to all share-based payments granted after the effective date of the pronouncement; or a ‘modified retrospective’ method which allows entities to restate prior periods based on the amounts previously recognised under SFAS 123 for the purposes of pro forma disclosures. The Company adopted SFAS 123(R) using the modified prospective method.

The Company adopted the fair-value based method of accounting for share-based payments using the ‘retroactive restatement method’ described in FASB Statement No. 148 ‘Accounting for Stock-Based Compensation - Transition and Disclosure’. The Company continues to use the Black-Scholes European option pricing model and, for awards based on total shareholder returns, a Monte Carlo simulation model, to estimate the value of stock options granted to employees upon adoption of SFAS 123(R). The adoption of SFAS 123(R) has not had a material impact on its accounts.

SFAS 151

The FASB issued SFAS No. 151 ‘Inventory Costs - an amendment of ARB No. 43’ (SFAS 151). SFAS 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) as current period charges. SFAS 151 is effective for fiscal periods beginning after 15 June 2005. The adoption of SFAS 151 has not had a material effect on the Company's accounts.

SFAS 153

In December 2004, as part of the FASB's short-term convergence project with the International Accounting Standards Board, the FASB issued FASB Statement No. 153 ‘Exchanges of Non-Monetary Assets’ (SFAS 153), which is an amendment to APB Opinion No. 29 ‘Accounting for Non-Monetary Transactions’ (APB 29). APB 29 provided an exemption to its general principle of measuring such transactions at fair value where the exchange related to similar productive assets. The exemption permitted the exchange to be valued at the recorded amount of the assets relinquished. SFAS 153 removes this exemption so that all non-monetary transactions (apart from those without commercial substance) are recorded at fair value. The Company adopted SFAS 153 prospectively for all transactions taking place from 1 April 2006. The adoption of SFAS 153 has not had a material impact on its accounts.

SFAS 154

In May 2005, the FASB issued SFAS No. 154 ‘Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3’ (SFAS 154). SFAS 154 requires retrospective application of prior periods' financial statements for changes in accounting principle. SFAS 154 applies to accounting periods beginning after 15 December 2005. The adoption of SFAS 154 has not had a material effect on the Company's accounts.

Recent US pronouncements not yet adopted

SFAS 155

In February 2006, the FASB issued SFAS No. 155 ‘Accounting for Certain Hybrid Financial Instruments - an amendment of SFAS No. 133 and SFAS No. 140’ (SFAS 155). SFAS 155 provides clarification on specific points related to derivative accounting. It provides a fair value measurement option for certain hybrid financial instruments that contain embedded derivatives that would otherwise require bifurcation. It also requires that beneficial interests in securitised financial assets be analysed to determine whether they are freestanding derivatives or whether they are hybrid instruments that contain embedded derivatives requiring bifurcation. SFAS 155 is effective for fiscal years beginning after 15 September 2006. The Company does not believe that the adoption of SFAS 155 will have a material effect on its accounts.

SFAS 157

In September 2006, the FASB issued SFAS No. 157 ‘Fair Value Measurements’ (SFAS 157). SFAS 157 provides enhanced guidance for using fair value to measure assets and liabilities when other pronouncements require or permit fair value measurements, but does not require any new fair value measurements. The statement defines fair value, establishes a framework for measuring fair value under US GAAP and expands disclosures about fair value measurements. The Company does not believe that the adoption of SFAS 157 will have a material effect on its accounts.

SFAS 159

In February 2007, the FASB issued SFAS No. 159 ‘The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115’ (SFAS 159). SFAS 159 permits an entity, at specified election dates, to choose to measure certain financial instruments and other items at fair value. The objective of SFAS 159 is to provide entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently, without having to apply complex hedge accounting provisions. SFAS 159 also contains rules concerning the presentation of items measured at fair value and corresponding disclosures in the notes to the financial statements. The application of SFAS 159 is mandatory for fiscal years that begin after 15 November 2007. The Company is currently evaluating the potential effects on its accounts of applying SFAS 159.

FIN 48

In July 2006, the FASB issued Financial Interpretation No. 48 ‘Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109’ (FIN 48), which specifies how tax benefits for uncertain tax positions are to be recognised, measured and derecognised in financial statements. FIN 48 requires certain disclosures of uncertain tax matters, specifies how reserves for uncertain tax provisions should be classified in the balance sheet and provides transition and interim-period guidance. FIN 48 is effective for years beginning after 15 December 2006. The Company is currently evaluating the potential effects on its accounts of applying FIN 48.

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